July 31, 2006

THERE’S GENERAL AGREEMENT among economists (and most economic journalists) that the American labour market isn’t nearly as strong as we would expect it to be at this point in the business cycle. Unemployment figures are, to be sure, quite low, but in part that is because a number of people have dropped out of the labour force; both the labour force participation rate and the employment-to-population ratio are at least a full percentage point below what they were in the late 1990’s. Median wages have stagnated since that time, indicating that labour demand is weaker than you would think if you just looked at the “headline” unemployment figure of 4.6%. One of my colleagues argues that this is because of competition from improving technology and (yes) outsourcing; anyone who has a job that can be routinized is in trouble. This includes a whole lot of white collar workers who used to have relatively secure and lucrative jobs; globalization seems to be making the poor better off at the expense of the middle class. The loss of those jobs isn’t a tragedy for the economy, of course; eventually, they will be replaced by better jobs, just as jobs weaving cotton cloth and braiding buggy whips were. But in the short term, it can be awfully hard on people who thought they had a safe living.

Andrew Samwick talks about one of the reasons that this dislocation is hitting the participation figures so hard: men are living off savings or spouses or going on disability rather than accept lower-paying, lower-status jobs. It seems to me that we used to have a society in which going on disability was more stigmatized than taking a job pumping gas. Has that changed?